The journey of reforms in the Indian capital market started in 1991 with the establishment of SEBI. We saw some game-changing reforms like the Setting up of Private Mutual Funds, Opening up to Foreign Capital, and Access to International Capital Markets and Banks.
Learning from the experience and making the capital market a safe investment destination, Sebi has unleashed many reforms.
In the last 2 years, we have seen major reforms like pledge – re-pledge to make sure that the security given for margin remains in client accounts, upfront margin requirements for all trades, Peak margin system to avoid over leverage, and segregation of client funds and securities.
Taking commodity markets under the Sebi fold will also ensure orderly development. The recent relaxation of permitting FPI and mutual funds to participate in commodity markets will further boost liquidity and volume.
With digitisation and the use of technology, the Indian capital market is considered to be the most advanced. Capital markets could ensure seamless service to investors during the entire covid period. The growth of the capital market is visible from participation by new age investors, growing Demat accounts and SIP.
It was retail participation that helped to absorb selling by FII/FPIs. India has outperformed global markets. Morgan Stanley in a recent report mentioned that the next decade belongs to India, and it has the potential to reach a $10 trillion market cap by end of the decade.
The reform process will continue and will see many new initiatives like T+1 settlement, efficient management of client money, Cybersecurity Framework, tighter insider trading regulations, developments at Gift city to make India a price setter in some financial products, and make India a financial hub for south-east Asia. Reforms are also required for IPO to see transparent pricing. Also, a lot of integration among different regulators will help the implementation of reforms effectively. All these reforms will attract FII and FPI to make India a preferred investment destination. We shall see a slew of new products. Days are not far when retail investors will use Algorithms for trading. Algo trading helps to reduce subjectivity and ensures that decisions are made objectively. Volatility in the market may call for a very quick and accurate response coupled with eliminating emotions. Algo can handle multiple trades in a fraction of a second.
Reforms are a continuing process and will have to match the growth of the capital market in India. India has a long way to go to convert savings into investment and participation. With positive economic indicators, we feel India will be a developed economy with vibrant capital markets by the time we celebrate 100 years of independence.
(Kamlesh Shah is the President of ANMI)
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